Appeals Court Finds FHFA Structure Unconstitutional

The Fifth Circuit US Court of Appeal in Texas recently concluded that the leadership structure of the Federal Housing Finance Agency (FHFA) is unconstitutional.

The three-member panel of judges, led by Chief Justice Carl Stewart, heard a case filed by three GSE shareholders, Fanny May and Freddie Mac against FHFA, its director as well treasury and his secretary.

Shareholders argue that the Ministry of Finance and the FHFA have exceeded their statutory powers under the Hera Housing Act 2008 and challenged an agreement between FHFA as Conservative Fannie and Freddie and the Treasury.

Under the agreement in question, shareholders say the state treasure has provided billions of dollars of taxpayers’ capital. Instead, GSEs were required to pay Treasury’s quarterly dividends, equal to their full value, in exchange for a “clean-up of net worth”. Shareholders were dissatisfied with the rescue conditions of this agreement and filed a lawsuit, arguing that the deal gave them value.

They also argue that the agreement is arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. § 706 (2) (A), claiming that the FHFA is unconstitutional structured because it is headed by a director who can only be dismissed for the sake of not being dependent on the Congress’s budget and avoiding a meaningful judicial review. “

After the hearing, the three-party hearing dismissed the legal claims of the shareholders and gave a summary conviction in favor of FHFA and Treasury on the constitutional claim. “As we find that FHFA has acted within the framework of its state power by accepting the net value, we claim that APA’s shareholders’ shares are forbidden by § 4617 (f),” the judge commented. “But we also find that the FHFA is unconstitutionally structured and violates the division of powers, so we partially confirm and partly return.”

A recent solution by a New York judge also confirmed a previous decision that the Financial Protection Bureau (BCFP) is unconstitutional for the same reason.